Morgan Stanley Beats Estimates as Advisors Improve Results

The flow of advisors’ fee-based assets continue to increase at $15 billion in Q1

Morgan Stanley CEO James Gorman on Fox Business Network. (Photo: AP) Morgan Stanley CEO James Gorman on Fox Business Network. (Photo: AP)

Morgan Stanley (MS) said early Thursday that it had net sales of $8.2 billion for the first quarter ended March 31, compared with revenues of $6.9 billion a year ago. For the current quarter, income from continuing operations applicable to Morgan Stanley was $1.0 billion, or $0.50 per share, compared with a loss of $79 million, or a loss of $0.05 per share, for the year-ago period.

Excluding a debt-value adjustment of $317 million, net revenues for the current quarter were $8.5 billion compared with $8.9 billion a year ago and income from continuing operations applicable to Morgan Stanley was $1.2 billion, or $0.61 per share, compared with income of $1.4 billion, or $0.71 per share a year ago.

Analysts had expected the company to report earnings excluding items like DVA of $0.57 a share on $8.35 billion in revenue, according Reuters.

"Morgan Stanley demonstrated solid momentum across the firm this quarter, consistent with the strategic objectives we laid out at the beginning of the year,” said Chairman and CEO James Gorman in a press release.

Wealth Management

Morgan Stanley’s Global Wealth Management Group reported pretax income from continuing operations of $597 million compared with $562 million in the prior quarter and $403 million in the first quarter of last year. The quarter's pretax margin was 17% versus 17% in the prior quarter and 12% a year ago.

Net revenues for the current quarter were $3.47 billion, compared with $3.32 billion in the prior quarter and $3.29 billion a year ago. Income after the noncontrolling interest allocation to Citigroup (C) and before taxes was $476 million.

Net income for the first quarter of 2013 was $255 million, down 4% from $267 million in the prior quarter, but up 29% from the year-ago quarter.

In terms of the unit’s advisor headcount, Morgan Stanley had 16,284 reps as of March 30 versus 16,352 as of Dec. 31, 2012, and 16,726 as of March 30, 2012—a 3% year-over-year decline (or a loss of 442 advisors).

As its headcount fell slightly, its annualized average fees and commissions per advisor rose to $851,000—a 5% jump from the earlier quarter and a 9% jump from last year.

The average level of client assets per rep was $110 million, up from $104 million three months ago and $100 million a year before.

Fee-based assets continue to rise. They now stand at 35% of total assets versus 33% in Q4’12 and 31% in Q1’12. Meanwhile, fee-based assets flows totaled $15.3 billion in the most-recent quarter, up from $6.9 billion in the prior quarter and $10.2 billion a year before.

The wirehouse firm notes that its asset management fee revenues of $1.9 billion increased 8% from last year's first quarter “primarily reflecting an increase in fee-based assets and positive flows.”

Compensation expenses for the current quarter were $2.1 billion, compared with $2.0 billion a year ago on higher revenues, the firm says. At the same time, noncompensation spending of $808 million fell from $879 million a year ago, partly driven by the absence of platform integration costs (tied to the merger of Morgan Stanley and Smith Barney).

Total client assets were $1.8 trillion at quarter end.

“In Global Wealth Management, our operating pretax profit was the highest in our history," Gorman said, "and we look forward to completing the acquisition of the remaining 35% of our wealth-management joint venture [from Citi] once we have obtained full regulatory approval.”

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